Neeleman’s Azul Said to Mull Boeing-Airbus Jets to Go Abroad

Neeleman, 54, founded Azul, whose name means “blue” in Portuguese, in 2008, a year after he was ousted by JetBlue Airway’s Corp. board following a service meltdown after an ice storm. Photographer: Paulo Fridman/Bloomberg

April 4 (Bloomberg) -- Azul, the Brazilian airline created
by JetBlue Airways founder David Neeleman, is in talks with
Airbus Group NV, Boeing Co. and lessors about wide-body jets to
start flying abroad, people familiar with the matter said.

Boeing’s 787-8 Dreamliner is one of the models under
review, said two of the people who asked not to be identified
because the talks are private. Airbus’s current A330-200 and an
upgraded version still on the drawing board are also part of the
discussion, the people said.

Acquiring twin-aisle jets would be a shift from Azul’s
current focus on using smaller planes on domestic routes. The
expansion also would thrust Azul into competition with the two
largest airlines serving Brazil, Gol Linhas Aereas Inteligentes
SA and Latam Airlines Group SA, as well as U.S. discounters
vying for more of the burgeoning inter-American travel market.

Neeleman “may be doing this with an eye to the Olympics”
in Rio de Janeiro in 2016, said Robert Mann, an aviation
consultant based in Port Washington, New York. “As the low-cost
operator, they’ve got great advantages.”

Jacques Rocca, a spokesman for Toulouse, France-based
Airbus, declined to comment as did Boeing’s Marc Birtel.
Gianfranco Panda Beting, communications and brand director for
Azul Linhas Aereas Brasileiras SA, as the carrier is formally
known, said the company has “no concrete plans” at this time.

“We are focused on Brazil,” he said yesterday in a
telephone interview. “This is a long-term project.”

Domestic Carrier

Azul’s fleet is tailored to Brazil’s domestic market, where
the Barueri-based discount carrier currently controls about 17
percent of flying after acquiring Trip last year. Azul currently
flies 134 planes, from Embraer SA jets seating as many as 118
people to smaller turboprops, according to its website.

The Dreamliners discussed with Boeing included 787s from
early in the production run for the world’s first composite-plastic jetliner, one person said. Those planes, which are known
as the “teens” and are heavier than jets assembled later,
would be deeply discounted, the person said.

The 787-8, the smallest version of the Dreamliner, seats
242 passengers and has a list price of $211.8 million, according
to Boeing’s website. Airbus’s catalog price is $221.7 million
for an A330-200, which can carry 246 people.

Azul also is considering narrow-body models such as the
Airbus A321neo and Boeing’s 737 Max, along with the planned
upgraded version of Embraer’s E190, which wouldn’t be capable of
international routes, one of the people said. The carrier is
examining the economics of each aircraft type and how it fits
into the current business model, that person said.

Blue Upstart

Neeleman, 54, founded Azul, whose name means “blue” in
Portuguese, in 2008, a year after he was ousted by JetBlue
Airway’s Corp. board following a service meltdown after an ice
storm. New York-based JetBlue began flying in 2000.

Brazil was a natural fit for the aviation entrepreneur, who
spent his first five years in the country, is fluent in
Portuguese and holds dual citizenship that allowed him to get
around a 20 percent cap on foreign ownership of airlines.

Like Southwest Airlines Co., which acquired Neeleman’s
Morris Air venture, Azul aims to create a new market of fliers
among Brazil’s middle-class with service often based in
secondary airports in a market where costs are lower.

Azul’s possible expansion comes after it delayed plans for
a public sale of stock last month that would have raised $450
million, citing unfavorable macroeconomic conditions.

Domestic Travel

With domestic travel slowing amid a weakening of the real,
Brazil’s carriers are eyeing international markets for growth,
said George Ferguson, a senior analyst with Bloomberg
Industries, based in Skillman, New Jersey. “They’re all looking
outside the country,” he said.

International routes within the American continents are
highly profitable, Ferguson said. Yields on flights to Latin
America are the strongest of any region in the world for U.S.
carriers, averaging 16.3 percent in the fourth quarter of 2013,
according to data compiled by Bloomberg Industries.

Airline deregulation is also opening up big markets like
the U.S., Mexico, Argentina and Chile, countries where Azul
would enjoy a cost advantage over entrenched competitors, Mann
said in a phone interview.

Air travel has soared between the U.S. and Brazil under a
2010 Open Skies treaty that gave U.S. carriers greater access to
slot-constrained airports in Sao Paulo and Rio De Janeiro
starting in 2011, and will drop all barriers to airline
competition between the two countries by late 2015.

Florida Beachhead

Total scheduled service seats, a measure of capacity, rose
29 percent to 4.6 million between the U.S. and Brazil for the
first nine months of 2013 from the same period in 2011,
according to data compiled by the Bureau of Transportation
Statistics.

The U.S. is another natural fit for Azul, especially a
south Florida beachhead like Fort Lauderdale, where low-cost
carriers JetBlue Airways Corp. and Spirit Airlines Inc. already
operate international flights to Latin America, Mann said.

After building a network offering 860 daily flights to 104
cities within Brazil, it’s natural that Neeleman would graduate
to larger jets to meet burgeoning demand, Mann said.

“The next step would be to use that feed to enter
international service,” Mann said.